Three Telcos Seek Cancellation of 100pc Cash Margin Requirement for Imports

KARACHI: Three of the five telecom operators have approached the State Bank of Pakistan (SBP) for the cancellation of the recently imposed 100% cash margin requirement for the import of “almost all” equipment related to telecommunications. telecommunications that these companies usually buy from abroad.

In a recent letter to the central bank’s Banking Policy and Regulation Department, representatives from Jazz, Telenor and Ufone said the requirement that came into effect on April 7 is “extremely harmful” to the industry.

A cash margin requirement of 100pc means telcos must deposit the full dollar amount of the transaction value with their banks before letters of credit are opened. The move is aimed at limiting the volume of imports, as companies struggle to get cash in advance.

“Nearly 85-90% of imported telecom equipment now falls under this new circular and as a result, this will have a severely negative impact on the liquidity situation as well as the financing needs of telecom companies,” the officials said. three companies in their joint correspondence to the SBP.

The telecom sector is highly dependent on imports for its equipment, which cannot be described as “luxury” items. The revised list requiring a cash margin of 100pc includes items such as electrical equipment, lithium batteries, routers, cell phones, major telecom equipment, telecom parts, hard drives and servers.

The change in margin requirements has led to a cash crunch at telecom companies, which are “not cash-rich”. Their financing plans are based on their cash cycles in which supplier payments are assumed in accordance with the credit terms of the contract. “With the sudden and immediate change in regulatory requirements, the cash outflow that was to occur at a future date must be made immediately (initially for banks as cash margin), which has a direct impact on liquidity and the financial health of companies. ,” It said.

The three companies have also threatened to either scale back their network expansion plans or seek new funding from banks, which is a time-consuming process and requires a “completely different expansion plan.”

Meeting the SBP requirements will have a direct impact on the telecommunications capital expenditure rollout plans for the year, which include network capacity improvements to increase penetration and modernization of services as well as the to upgrade base transceiver station sites from 2G technology to 3G/4G technology, they said.

They demanded that the SBP remove telecommunications-related HS codes from its circular to avoid the “potential crisis”.

Separately, IT infrastructure company CNS Engineering and Technologies Ltd has also approached the SBP to lift margin restrictions imposed on imports of IT-related equipment.

“All IT equipment consumers including banks, software vendors, call centers, business process outsourcing units, data centers and cloud operators and manufacturing industries on the go of digital transformation are using these devices to operate their equipment for the delivery of their products and services,” company CEO Najam H. Mian said in his letter to the SBP Governor.

The Chamber of Commerce and Industry of Foreign Investors, which represents almost all blue chip multinationals operating in the country, has also registered its official protest with the SBP against the imposition of a 100% cash margin on imports of computer and telecommunications equipment.

Posted in Dawn, 1 May 2022

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